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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended: December 31, 2005



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period From              to



Commission File Number: 000-21363



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EDUCATION MANAGEMENT CORPORATION

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 25-1119571                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|210 Sixth Avenue, Pittsburgh, PA                               |  | 15222                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code: (412) 562-0900



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Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes x    No ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                    |  |                       
|-------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer  x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈



Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No x



The number of shares of the registrants
Common Stock outstanding at December 31, 2005 was 75,448,584.



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##### Table of Contents

INDEX



|              |  |                       |  |                                                                                       |  |      
|------------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | -----
|              |  |                       |  |                                                                                       |  | PAGE 
|PART I       |  | FINANCIAL INFORMATION |  |                                                                                      
|              |  |                       | 
|              |  | ITEM 1               |  | FINANCIAL STATEMENTS                                                                  |  | 3-11 
|              |  | ITEM 2               |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 12-20
|              |  | ITEM 3               |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 21   
|              |  | ITEM 4               |  | CONTROLS AND PROCEDURES                                                               |  | 21   
|              |  |                      
|PART II      |  | OTHER INFORMATION     |  |                                                                                      
|              |  |                       | 
|              |  | ITEM 4               |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 22   
|              |  |                       | 
|              |  | ITEM 6               |  | EXHIBITS                                                                              |  | 22   
|              | 
|SIGNATURES    |  | 23                   
|              | 
|EXHIBIT INDEX |  | 24                   



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##### Table of Contents

PART I



ITEM 1  FINANCIAL STATEMENTS



EDUCATION MANAGEMENT CORPORATION



CONDENSED
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|--------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | ---------------- |  | - | ------- | -
|                                                    |  | As of            |        
|                                                    |  | December 31,2005 |         |   | June 30,2005 |   |         | December 31,2004 | 
|                                                    |  | (unaudited)      |         |   |              |   |         | (unaudited)      | 
|Assets                                              |  |                  |         |   |              |   |         |                  |  |   |         |  
|Current assets:                                     |  |                  |         |   |              |   |         |                  |  |   |         |  
|Cash and cash equivalents                           |  | $                | 213,449 |   |              | $ | 171,974 |                  |  | $ | 29,222  |  
|Restricted cash                                     |  |                  | 4,568   |   |              |   | 4,892   |                  |  |   | 4,744   |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total cash and cash equivalents and restricted cash |  |                  | 218,017 |   |              |   | 176,866 |                  |  |   | 33,966  |  
|Receivables, net                                    |  |                  | 43,660  |   |              |   | 57,968  |                  |  |   | 47,883  |  
|Inventories                                         |  |                  | 7,423   |   |              |   | 5,598   |                  |  |   | 6,771   |  
|Prepaid income taxes                                |  |                  |        |   |              |   | 16,173  |                  |  |   |        |  
|Deferred income taxes                               |  |                  | 13,616  |   |              |   | 13,870  |                  |  |   | 17,203  |  
|Other current assets                                |  |                  | 14,147  |   |              |   | 9,203   |                  |  |   | 10,908  |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total current assets                                |  |                  | 296,863 |   |              |   | 279,678 |                  |  |   | 116,731 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Property and equipment, net                         |  |                  | 328,047 |   |              |   | 325,796 |                  |  |   | 289,871 |  
|Deferred income taxes                               |  |                  | 1,268   |   |              |   |        |                  |  |   |        |  
|Other long-term assets                              |  |                  | 16,910  |   |              |   | 18,294  |                  |  |   | 15,986  |  
|Intangible assets, net of amortization              |  |                  | 16,134  |   |              |   | 17,499  |                  |  |   | 18,358  |  
|Goodwill                                            |  |                  | 317,232 |   |              |   | 314,760 |                  |  |   | 315,238 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total assets                                        |  | $                | 976,454 |   |              | $ | 956,027 |                  |  | $ | 756,184 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Liabilities and shareholders investment            |  |                  |         |   |              |   |         |                  |  |   |         |  
|Current liabilities:                                |  |                  |         |   |              |   |         |                  |  |   |         |  
|Current portion of long-term debt                   |  | $                | 4,155   |   |              | $ | 66,151  |                  |  | $ | 235     |  
|Accounts payable                                    |  |                  | 26,126  |   |              |   | 30,112  |                  |  |   | 27,846  |  
|Accrued liabilities                                 |  |                  | 42,625  |   |              |   | 52,581  |                  |  |   | 36,412  |  
|Accrued income taxes                                |  |                  | 16,401  |   |              |   |        |                  |  |   | 20,676  |  
|Advanced payments                                   |  |                  | 66,894  |   |              |   | 54,383  |                  |  |   | 55,495  |  
|Unearned tuition                                    |  |                  | 7,405   |   |              |   | 29,411  |                  |  |   | 6,799   |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total current liabilities                           |  |                  | 163,606 |   |              |   | 232,638 |                  |  |   | 147,463 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Long-term debt, less current portion                |  |                  | 4,584   |   |              |   | 4,269   |                  |  |   | 5,350   |  
|Deferred income taxes                               |  |                  |        |   |              |   | 2,145   |                  |  |   | 4,364   |  
|Deferred rent                                       |  |                  | 46,653  |   |              |   | 44,489  |                  |  |   |        |  
|Other long-term liabilities                         |  |                  | 7,038   |   |              |   | 6,476   |                  |  |   | 10,422  |  
|                                                    |  |                  |        
|Shareholders investment:                           |  |                  |         |   |              |   |         |                  |  |   |         |  
|Common stock                                        |  |                  | 757     |   |              |   | 751     |                  |  |   | 742     |  
|Additional paid-in capital                          |  |                  | 354,433 |   |              |   | 328,972 |                  |  |   | 304,620 |  
|Treasury stock, at cost                             |  |                  | (2,142  | ) |              |   | (1,791  | )                |  |   | (1,791  | )
|Retained earnings                                   |  |                  | 393,537 |   |              |   | 331,956 |                  |  |   | 278,115 |  
|Accumulated other comprehensive income              |  |                  | 7,988   |   |              |   | 6,122   |                  |  |   | 6,899   |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total shareholders investment                      |  |                  | 754,573 |   |              |   | 666,010 |                  |  |   | 588,585 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  
|Total liabilities and shareholders investment      |  | $                | 976,454 |   |              | $ | 956,027 |                  |  | $ | 756,184 |  
|                                                    |  |                  |         |   |              |   |         |                  |  |   |         |  



The accompanying notes
to condensed consolidated financial statements are an integral part of these statements.



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##### Table of Contents

EDUCATION MANAGEMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in
thousands, except per share amounts)



|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|------------------------------------------------------ |  | -------------------------------------- | ------- | ------------------------------------ | ---- | - | ------- |  | - | ------- | - |  | - | -------
|                                                       |  | For the three monthsended December 31, |         | For the six monthsended December 31,
|                                                       |  | 2005                                   |         |                                      | 2004 |   | 2005    |  |   | 2004   
|Net revenues                                           |  | $                                      | 312,611 |                                      |      | $ | 275,808 |  | $ | 565,596 |   |  | $ | 489,402
|Costs and expenses:                                    |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Educational services                                   |  |                                        | 171,096 |                                      |      |   | 157,412 |  |   | 342,497 |   |  |   | 308,237
|General and administrative                             |  |                                        | 62,533  |                                      |      |   | 51,629  |  |   | 121,975 |   |  |   | 98,161 
|Amortization of intangible assets                      |  |                                        | 1,130   |                                      |      |   | 1,657   |  |   | 2,617   |   |  |   | 3,423  
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|                                                       |  |                                        | 234,759 |                                      |      |   | 210,698 |  |   | 467,089 |   |  |   | 409,821
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Income before interest and taxes                       |  |                                        | 77,852  |                                      |      |   | 65,110  |  |   | 98,507  |   |  |   | 79,581 
|Interest (income) expense, net                         |  |                                        | (1,444  | )                                    |      |   | 260     |  |   | (2,148  | ) |  |   | 983    
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Income before income taxes                             |  |                                        | 79,296  |                                      |      |   | 64,850  |  |   | 100,655 |   |  |   | 78,598 
|Provision for income taxes                             |  |                                        | 31,667  |                                      |      |   | 25,270  |  |   | 39,074  |   |  |   | 30,865 
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Net income                                             |  | $                                      | 47,629  |                                      |      | $ | 39,580  |  | $ | 61,581  |   |  | $ | 47,733 
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Earnings per share:                                    |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Basic                                                  |  | $                                      | 0.63    |                                      |      | $ | 0.54    |  | $ | 0.82    |   |  | $ | 0.65   
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Diluted                                                |  | $                                      | 0.62    |                                      |      | $ | 0.53    |  | $ | 0.80    |   |  | $ | 0.64   
|                                                       |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Weighted average number of shares outstanding (000s): |  |                                        |         |                                      |      |   |         |  |   |         |   |  |   |        
|Basic                                                  |  |                                        | 75,327  |                                      |      |   | 73,775  |  |   | 75,193  |   |  |   | 73,615 
|Diluted                                                |  |                                        | 76,673  |                                      |      |   | 75,315  |  |   | 76,586  |   |  |   | 75,127 



The accompanying notes
to condensed consolidated financial statements are an integral part of these statements.



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EDUCATION MANAGEMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in
thousands)



|                                                                                 |  |                                       |         |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                 |  | For the six months ended December 31, |        
|                                                                                 |  | 2005                                  |         |   | 2004 |  
|Cash flows from operating activities:                                            |  |                                       |         |   |      |   |          |  
|Net income                                                                       |  | $                                     | 61,581  |   |      | $ | 47,733   |  
|                                                                                 |  |                                      
|Adjustments to reconcile net income to net cash flows from operating activities: |  |                                       |         |   |      |   |          |  
|Depreciation and amortization                                                    |  |                                       | 31,684  |   |      |   | 25,328   |  
|Amortization of intangibles                                                      |  |                                       | 2,617   |   |      |   | 3,423    |  
|Deferred income taxes                                                            |  |                                       | (3,172  | ) |      |   | (1,258   | )
|Excess tax benefits from share based payments                                    |  |                                       | (1,291  | ) |      |   |         |  
|Stock based compensation expense                                                 |  |                                       | 13,295  |   |      |   | 514      |  
|Changes in current assets and liabilities:                                       |  |                                       |         |   |      |   |          |  
|Restricted cash                                                                  |  |                                       | 324     |   |      |   | 1,670    |  
|Receivables                                                                      |  |                                       | 14,345  |   |      |   | 4,539    |  
|Inventories                                                                      |  |                                       | (1,808  | ) |      |   | (1,728   | )
|Other current assets                                                             |  |                                       | 587     |   |      |   | (3,509   | )
|Accounts payable                                                                 |  |                                       | (2,004  | ) |      |   | 727      |  
|Accrued liabilities                                                              |  |                                       | 26,212  |   |      |   | 11,458   |  
|Advance payments                                                                 |  |                                       | 12,340  |   |      |   | 5,866    |  
|Unearned tuition                                                                 |  |                                       | (22,005 | ) |      |   | (14,218  | )
|                                                                                 |  |                                       |         |   |      |   |          |  
|Total adjustments                                                                |  |                                       | 71,124  |   |      |   | 32,812   |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Net cash flows from operating activities                                         |  |                                       | 132,705 |   |      |   | 80,545   |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Cash flows from investing activities:                                            |  |                                       |         |   |      |   |          |  
|Acquisition of subsidiaries, net of cash acquired                                |  |                                       | (1,333  | ) |      |   | (12,366  | )
|Expenditures for property and equipment                                          |  |                                       | (34,600 | ) |      |   | (40,575  | )
|Other items, net                                                                 |  |                                       | (1,748  | ) |      |   | 4,293    |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Net cash flows from investing activities                                         |  |                                       | (37,681 | ) |      |   | (48,648  | )
|                                                                                 |  |                                       |         |   |      |   |          |  
|Cash flows from financing activities:                                            |  |                                       |         |   |      |   |          |  
|Revolving credit facility activity, net                                          |  |                                       | (62,000 | ) |      |   | (125,100 | )
|Principal payments on debt                                                       |  |                                       | (409    | ) |      |   | (49      | )
|Excess tax benefits from share based payments                                    |  |                                       | 1,291   |   |      |   |         |  
|Proceeds from issuance of Common Stock                                           |  |                                       | 9,045   |   |      |   | 7,779    |  
|Other                                                                            |  |                                       | 530     |   |      |   |         |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Net cash flows from financing activities                                         |  |                                       | (51,543 | ) |      |   | (117,370 | )
|                                                                                 |  |                                       |         |   |      |   |          |  
|Effect of exchange rate changes on cash                                          |  |                                       | (2,006  | ) |      |   | (2,033   | )
|                                                                                 |  |                                       |         |   |      |   |          |  
|Net change in cash and cash equivalents                                          |  |                                       | 41,475  |   |      |   | (87,506  | )
|Cash and cash equivalents, beginning of period                                   |  |                                       | 171,974 |   |      |   | 116,728  |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Cash and cash equivalents, end of period                                         |  | $                                     | 213,449 |   |      | $ | 29,222   |  
|                                                                                 |  |                                       |         |   |      |   |          |  
|Supplemental disclosure of cash flow information:                                |  |                                       |         |   |      |   |          |  
|Cash paid during the period for:                                                 |  |                                       |         |   |      |   |          |  
|Interest                                                                         |  | $                                     | 151     |   |      | $ | 659      |  
|Income taxes                                                                     |  |                                       | 6,176   |   |      |   | 16,970   |  
|Noncash investing and financing activities:                                      |  |                                       |         |   |      |   |          |  
|Expenditures for property and equipment included in accounts payable             |  |                                       | 2,944   |   |      |   | 2,858    |  



The accompanying notes
to condensed consolidated financial statements are an integral part of these statements.



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



BASIS OF PRESENTATION



The accompanying interim condensed consolidated financial
statements should be read in conjunction with the financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2005 (the Fiscal 2005 Annual Report). These
condensed consolidated financial statements include the accounts of Education Management Corporation and its consolidated subsidiaries. The accompanying condensed consolidated balance sheet at June 30, 2005 has been derived from the audited
balance sheet included in the Companys Fiscal 2005 Annual Report. The accompanying interim condensed consolidated financial statements are unaudited; however, management believes that all adjustments necessary for a fair presentation have been
made and all such adjustments are considered normal and recurring. The results for the three and six month periods ended December 31, 2005 are not necessarily indicative of the results to be expected for the full fiscal year. Unless otherwise
noted, references to 2006 and 2005 refer to the periods ended December 31, 2005 and 2004, respectively.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts. Estimates are used when accounting for the allowance for doubtful accounts, the allocation of purchase price to the estimated fair value of assets acquired during
business combinations, depreciation, amortization, contingencies, expenses and income taxes, among others during the reporting periods. Actual results could differ from these estimates.



Certain prior period balances have been reclassified to conform to the current period presentation.



NATURE OF OPERATIONS



We are among the largest providers of private post-secondary
education in North America, based on student enrollment and revenue, and have provided career-oriented education for over 40 years. We deliver education to our students through traditional classroom settings as well as through online instruction. As
of June 30, 2005, we had 71 primary campus locations in 24 states and two Canadian provinces. Our total student enrollment as of the fall of 2005 exceeded 72,000 students. We were organized as a Pennsylvania corporation in 1962 and completed
our initial public offering in 1996.



Our
educational systems offer a broad range of academic programs concentrated in the media arts, design, fashion, culinary arts, behavioral sciences, health sciences, education, information technology, legal studies and business fields, culminating in
the award of associates through doctoral degrees. We also offer non-degree programs, some of which result in the issuance of diplomas upon successful completion.



SHARE-BASED PAYMENT



The Company maintains a 1996 Stock Incentive Plan, 2003 Incentive Plan and Employee Stock Purchase Plan for directors, executive
management and key personnel which are described more fully in Note 13 of the Companys Fiscal 2005 Annual Report. Prior to July 1, 2005, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No 123, Accounting for Stock-Based Compensation. No option-based employee compensation cost was recognized in
the Statement of Operations for the years ended June 30, 2005 or 2004, nor in the three and six month periods ended December 31, 2004, as all options granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Effective July 1, 2005, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective transition
method. Under that transition method, compensation



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



cost recognized during the fiscal 2006 periods include (a) compensation cost for all share-based payments granted prior to, but not yet vested as of
July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date
fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.



As a result of adopting Statement 123(R) on July 1, 2005, the Companys income before income taxes for the three and six months
ended December 31, 2005 are $5.1 million and $11.1 million lower, respectively, than if it had continued to account for share-based compensation under Opinion No. 25.



Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions resulting
from the exercise of stock options as operating cash flows in the statement of cash flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those
options to be classified as financing cash flows, with a corresponding reduction in operating cash flows. The total income tax benefit recognized in the income statement for share-based compensation plans was $3.7 million for the six months ended
December 31, 2005.



The following table
illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement 123(R) to options granted under the Companys stock option plans in all periods presented. For purposes of
this pro forma disclosure, the value of the options is estimated using a Black-Scholes option pricing formula and amortized to expense over the options vesting period (dollars in thousands, except per share amounts).



|                                                                                                       |  |                                 |        |      |                              |        |          |  |      |        |  |   |        |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | ---- | ---------------------------- | ------ | -------- |  | ---- | ------ |  | - | ------ | -
|                                                                                                       |  | Three Months Ended December 31, |        |      | Six Months EndedDecember 31, |       
|                                                                                                       |  | 2005 (1)                        |        | 2004 |                              |        | 2005 (1) |  | 2004 |       
|Net income as reported                                                                                 |  | $                               | 47,629 |      | $                            | 39,580 |          |  | $    | 61,581 |  | $ | 47,733 |  
|Add: Share-based employee compensation expense included in reported net income, net of tax             |  |                                 |       |      |                              | 166    |          |  |      |       |  |   | 318    |  
|Deduct: Total share-based employee compensation expense determined under fair value method, net of tax |  |                                 |       |      |                              | (4,801 | )        |  |      |       |  |   | (9,004 | )
|                                                                                                       |  |                                 |        |      |                              |        |          |  |      |        |  |   |        |  
|Pro forma net income                                                                                   |  | $                               | 47,629 |      | $                            | 34,945 |          |  | $    | 61,581 |  | $ | 39,047 |  
|                                                                                                       |  |                                 |        |      |                              |        |          |  |      |        |  |   |        |  
|Basic earnings per share                                                                               |  |                                 |        |      |                              |        |          |  |      |        |  |   |        |  
|As reported                                                                                            |  | $                               | 0.63   |      | $                            | 0.54   |          |  | $    | 0.82   |  | $ | 0.65   |  
|Pro forma                                                                                              |  |                                 | NA     |      |                              | 0.47   |          |  |      | NA     |  |   | 0.53   |  
|Diluted earnings per share                                                                             |  |                                 |        |      |                              |        |          |  |      |        |  |   |        |  
|As reported                                                                                            |  | $                               | 0.62   |      | $                            | 0.53   |          |  | $    | 0.80   |  | $ | 0.64   |  
|Pro forma                                                                                              |  |                                 | NA     |      |                              | 0.47   |          |  |      | NA     |  |   | 0.52   |  
|Weighted average fair market value of options granted                                                  |  | $                               |       |      | $                            | 11.75  |          |  | $    | 14.50  |  | $ | 11.89  |  



| | (1) | Results for the three and six month periods ended December 31, 2005 include $7.0 million and $13.3 million, respectively, pre-tax in share based compensation expense. Results
for the three and six month periods ended December 31, 2004 included $0.3 and $0.5 million, respectively, pre-tax in share based compensation expense due to a restricted stock grant in September 2003. Grants made in fiscal 2006 are primarily
composed of restricted stock whereas grants made in fiscal 2005 were primarily comprised of stock options.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



|                                 |  |                               |  |                              |       |         |           |                                 |   |      
|-------------------------------- |  | ----------------------------- |  | ---------------------------- | ----- | ------- | --------- | ------------------------------- | - | -----
|                                 |  | Six months ended December 31,
|                                 |  | 2005                          |  | 2004                        
|                                 |  | Options                       |  | WeightedAverageExercisePrice |       | Options |           | Weighted Average Exercise Price
|Outstanding at beginning of year |  | 5,318,964                     |  | $                            | 22.27 |         | 6,848,039 |                                 | $ | 20.23
|Granted                          |  | 30,000                        |  |                              | 32.26 |         | 247,740   |                                 |   | 30.50
|Exercised                        |  | 429,800                       |  |                              | 15.38 |         | 658,967   |                                 |   | 11.92
|Forfeited                        |  | 100,934                       |  |                              | 28.81 |         | 128,184   |                                 |   | 26.88
|                                 |  |                               |  |                              |       |         |           |                                 |   |      
|Outstanding at end of period     |  | 4,818,230                     |  |                              | 22.82 |         | 6,308,628 |                                 |   | 21.37
|                                 |  |                               |  |                              |       |         |           |                                 |   |      
|Exercisable at end of period     |  | 4,315,155                     |  |                              | 21.98 |         | 4,099,813 |                                 |   | 17.53
|                                 |  |                               |  |                              |       |         |           |                                 |   |      
|Vested at end of period          |  | 4,322,155                     |  |                              | 22.00 |         | 4,099,813 |                                 |   | 17.53
|                                 |  |                               |  |                              |       |         |           |                                 |   |      



The total intrinsic
value of options exercised was $6.1 million and $10.1 million during the six-month periods ended December 31, 2005 and 2004, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2005 and 2004 was $45.3
million and $54.0 million, respectively.



As of
December 31, 2005 the total unrecognized compensation cost related to stock options is approximately $5.3 million, before the effect of forfeitures, and will be recognized over the next seven quarters in accordance with the vesting period of
the options.



The fair value of each option award is estimated
on the date of grant using a Black-Scholes option valuation model and the assumptions in the following table. The risk free interest rate for the periods within the contractual life of the option are generally based on United States Treasury yields
at the date of grant. The Company assumes no dividend since it has historically not paid and does not expect to pay dividends in the immediate future. The Company uses historical option exercise and termination data behavior to estimate the expected
life of an option grant. Expected volatilities are based on historical volatility of the Companys stock price.



|                                 |  |                                |  |      |                               |  |      |   |  |      |  
|-------------------------------- |  | ------------------------------ |  | ---- | ----------------------------- |  | ---- | - |  | ---- | -
|                                 |  | Three months endedDecember 31, |  |      | Six months ended December 31, | 
|                                 |  | 2005                           |  | 2004 |                               |  | 2005 |   |  | 2004 |  
|Risk-free interest rate          |  |                               |  | 3.42 | %                             |  | 3.96 | % |  | 3.46 | %
|Expected dividend yield          |  |                               |  |     |                               |  |     |   |  |     |  
|Expected life of options (years) |  |                               |  | 4.5  |                               |  | 4.5  |   |  | 4.5  |  
|Expected volatility rate         |  |                               |  | 40.4 | %                             |  | 40.0 | % |  | 40.5 | %



|                         |  |                     |  |                                                  |  |                               |       |         |           |                                 |   |      
|------------------------ |  | ------------------- |  | ------------------------------------------------ |  | ----------------------------- | ----- | ------- | --------- | ------------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                             
|Range of Exercise Prices |  | Options             |  | Weighted-AverageRemainingContractualLife (years) |  | Weighted-AverageExercisePrice |       | Options |           | Weighted-Average Exercise Price
|$3.75$4.67              |  | 64,000              |  | 1.30                                             |  | $                             | 3.87  |         | 64,000    |                                 | $ | 3.87 
|$4.68$9.25              |  | 687,944             |  | 3.41                                             |  |                               | 6.51  |         | 687,944   |                                 |   | 6.51 
|$9.26$14.00             |  | 570,789             |  | 5.71                                             |  |                               | 12.19 |         | 570,789   |                                 |   | 12.19
|$14.01$21.94            |  | 640,603             |  | 5.99                                             |  |                               | 18.54 |         | 625,911   |                                 |   | 18.50
|$21.95$32.92            |  | 2,840,300           |  | 6.48                                             |  |                               | 30.23 |         | 2,365,917 |                                 |   | 30.25
|$32.93$34.62            |  | 14,594              |  | 6.41                                             |  |                               | 34.56 |         | 594       |                                 |   | 33.12
|                         |  |                     |  |                                                  |  |                               |       |         |           |                                 |   |      
|                         |  | 4,818,230           |  | 5.82                                             |  | $                             | 22.82 |         | 4,315,155 |                                 | $ | 21.98
|                         |  |                     |  |                                                  |  |                               |       |         |           |                                 |   |      



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



Restricted Stock Awards



Restricted stock awards are grants that entitle the holder to shares of the Companys Common Stock as
the award vests. The shares ultimately received depends on performance against specified performance targets. The performance period is generally July 1, 2005 through June 30, 2006 and service requirements through September 29, 2007.
We measure the fair value of restricted stock awards based upon the market price of the underlying common stock at the date of grant. Restricted stock expense is amortized over the applicable vesting period (generally two years) using the straight
line method. As of the six months ended December 31, 2005, approximately 522,500 shares were issued with a weighted average grant price of $31.62 per share. If such performance goals are not met, any compensation expense recognized would be
reversed. For the three and six month periods ended December 31, 2005, the Company recognized approximately $1.8 million and $1.9 million, respectively, related to these awards. The unrecognized compensation cost related to restricted stock at
December 31, 2005 is approximately $12.1 million. The Company estimates that the quarterly expense, net of anticipated forfeitures, will be approximately $1.8 million per quarter.



2.    EARNINGS PER SHARE:



Basic earnings per share is computed using the weighted average number of shares outstanding during the period, while
diluted earnings per share is calculated to reflect the potential dilution related to stock options, using the treasury stock method (in thousands).



|                           |  |                                |  |                              |  |        |  |       
|-------------------------- |  | ------------------------------ |  | ---------------------------- |  | ------ |  | ------
|                           |  | Three months endedDecember 31, |  | Six months endedDecember 31,
|                           |  | 2005                           |  | 2004                         |  | 2005   |  | 2004  
|Basic shares               |  | 75,327                         |  | 73,775                       |  | 75,193 |  | 73,615
|Dilution for stock options |  | 1,346                          |  | 1,540                        |  | 1,393  |  | 1,512 
|                           |  |                                |  |                              |  |        |  |       
|Diluted shares             |  | 76,673                         |  | 75,315                       |  | 76,586 |  | 75,127
|                           |  |                                |  |                              |  |        |  |       



For the quarters ended
December 31, 2005 and 2004, options to purchase 251,347 shares and 2,819,204 were excluded from the diluted earnings per share calculation because of their antidilutive effect (due to the exercise price of such options exceeding the average
market price for the period).



3.    CAPITAL STOCK:



The Companys Capital Stock consists of the
following:



| |  |  | 10,000,000 authorized shares of Preferred Stock, $0.01 par value; and
| | - |  | ---------------------------------------------------------------------



| |  |  | 120,000,000 authorized shares of Common Stock, $0.01 par value.
| | - |  | ---------------------------------------------------------------



|                  |  |                   |  |               |  |                  
|----------------- |  | ----------------- |  | ------------- |  | -----------------
|                  |  | December 31, 2005 |  | June 30, 2005 |  | December 31, 2004
|Issued:           |  |                   |  |               |  |                  
|Preferred Stock   |  |                  |  |              |  |                 
|Common Stock      |  | 75,649,100        |  | 75,128,629    |  | 74,228,423       
|Restricted Stock  |  | 522,500           |  |              |  |                 
|Held in treasury: |  |                   |  |               |  |                  
|Preferred Stock   |  |                  |  |              |  |                 
|Common Stock      |  | 200,516           |  | 190,234       |  | 190,234          
|Outstanding:      |  |                   |  |               |  |                  
|Preferred Stock   |  |                  |  |              |  |                 
|Common Stock      |  | 75,448,584        |  | 74,938,395    |  | 74,038,189       



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



4.    INTANGIBLE ASSETS:



The Company accounts for its intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. The Company reviews intangible assets with an identifiable useful life for impairment, when indicators of impairment exist, as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Annually, or more frequently if necessary, the Company evaluates goodwill for impairment, with any resulting impairment reflected as an operating expense.



Amortization of intangible assets for the three months and six months ended December 31, 2005 and 2004 was approximately $1.1 million, $2.6 million,
$1.7 million, and $3.4 million, respectively. Estimated amortization expense for amortizable intangible assets for the next five fiscal years ending June 30 is as follows:



|                 |  |                        |      
|---------------- |  | ---------------------- | -----
|Fiscal years     |  | Expense (in thousands)
|2006 (remainder) |  | $                      | 1,437
|2007             |  |                        | 2,602
|2008             |  |                        | 2,214
|2009             |  |                        | 1,668
|2010             |  |                        | 910  



Intangible assets
consisted of the following (in thousands):



|                                   |  |                      |        |                         |   |         |                                           |  |                     |  |                         |        |  |   |         |  
|---------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------- | ----------------------------------------- |  | ------------------- |  | ----------------------- | ------ |  | - | ------- | -
|                                   |  | At December 31, 2005 |        | At June 30, 2005        |  
|                                   |  | GrossCarryingAmount  |        | AccumulatedAmortization |   |         | WeightedAverageAmortizationPeriod (years) |  | GrossCarryingAmount |  | AccumulatedAmortization |       
|Curriculum                         |  | $                    | 18,220 |                         | $ | (8,370  | )                                         |  | 7                   |  | $                       | 16,842 |  | $ | (7,024  | )
|Accreditation                      |  |                      | 4,023  |                         |   | (1,459  | )                                         |  | 15                  |  |                         | 4,023  |  |   | (1,323  | )
|Bachelors degree programs         |  |                      | 1,100  |                         |   | (379    | )                                         |  | 15                  |  |                         | 1,100  |  |   | (343    | )
|Student contracts and applications |  |                      | 12,595 |                         |   | (12,323 | )                                         |  | 4                   |  |                         | 12,556 |  |   | (11,377 | )
|Software                           |  |                      | 480    |                         |   | (414    | )                                         |  | 3                   |  |                         | 459    |  |   | (401    | )
|Title IV                           |  |                      | 1,130  |                         |   | (315    | )                                         |  | 12                  |  |                         | 1,130  |  |   | (267    | )
|Tradename                          |  |                      | 500    |                         |   |        |                                           |  | Indefinite          |  |                         | 500    |  |   |        |  
|Other                              |  |                      | 3,147  |                         |   | (1,801  | )                                         |  | 15                  |  |                         | 3,333  |  |   | (1,709  | )
|                                   |  |                      |        |                         |   |         |                                           |  |                     |  |                         |        |  |   |         |  
|Total                              |  | $                    | 41,195 |                         | $ | (25,061 | )                                         |  | 5                   |  | $                       | 39,943 |  | $ | (22,444 | )
|                                   |  |                      |        |                         |   |         |                                           |  |                     |  |                         |        |  |   |         |  



5.    COMPREHENSIVE INCOME:



Comprehensive income consisted of the following (in thousands):



|                                   |  |                                |        |                              |      |   |        |  |      |        |  |   |       
|---------------------------------- |  | ------------------------------ | ------ | ---------------------------- | ---- | - | ------ |  | ---- | ------ |  | - | ------
|                                   |  | Three months endedDecember 31, |        | Six months endedDecember 31,
|                                   |  | 2005                           |        |                              | 2004 |   | 2005   |  | 2004
|Net income                         |  | $                              | 47,629 |                              |      | $ | 39,580 |  | $    | 61,581 |  | $ | 47,733
|Other comprehensive income (loss): |  |                                |        |                              |      |   |        |  |      |        |  |   |       
|Foreign currency translation       |  |                                | (57    | )                            |      |   | 1,730  |  |      | 1,866  |  |   | 3,872 
|                                   |  |                                |        |                              |      |   |        |  |      |        |  |   |       
|Comprehensive income               |  | $                              | 47,572 |                              |      | $ | 41,310 |  | $    | 63,447 |  | $ | 51,605
|                                   |  |                                |        |                              |      |   |        |  |      |        |  |   |       



Accumulated other
comprehensive income represents the foreign currency translation adjustment of approximately $8.0 million and $6.9 million at December 31, 2005 and 2004, respectively.



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EDUCATION MANAGEMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



6.    NEW ACCOUNTING STANDARDS:



In October 2005, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position FAS 13-1 (FSP FAS 13-1), which requires companies to expense rental costs associated with ground or building operating leases that are incurred during a construction period. As a result, companies that are
currently capitalizing rental costs during the construction phase of a lease are required to expense rental costs beginning in the first reporting period beginning after December 15, 2005. FSP FAS 13-1 is effective for the Company as of the
third quarter of fiscal 2006. We evaluated the provisions of FSP FAS 13-1 and do not believe that its adoption will have a material impact on the Companys consolidated financial condition or results of operations.



In May 2005, the Financial Accounting Standards Board issued SFAS
No. 154, Accounting Changes and Error Corrections, which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principles as
well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 eliminates the requirement to include the cumulative effect of changes in accounting principle in the income statement
and instead requires that changes in accounting principle be retroactively applied. A change in accounting estimate continues to be accounted for in the period of change and future periods if necessary. A correction of an error continues to be
reported by restating prior period financial statements. SFAS No. 154 is effective for EDMC for accounting changes and correction of errors made on or after July 1, 2006.



In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional Asset
Retirement Obligations. FIN No. 47 clarifies the timing of liability recognition for retirement obligations associated with tangible long-lived assets that are conditional on a future event. FIN No. 47 is effective as of the end of
the fiscal year ending after December 31, 2005, with early adoption permitted. The Company is in the process of evaluating the potential impact of FIN No. 47, if any.



7.    ACCOUNTING FOR INCOME TAXES:



The effective tax rate for the Company was 39.9% and 38.8% for the second quarter and first six months of fiscal 2006
respectively, as compared to 39.0% and 39.3% for the same periods in the prior fiscal year. The increase in the quarterly rate as compared to the prior year was primarily due to a $1.3 million reduction in tax reserves recorded during the second
quarter of fiscal 2005 related to the favorable resolution of a tax audit. The decrease in the year-to-date rate as compared to the prior year was primarily due to the reversal of deferred state tax liabilities that resulted from Ohios
adoption of a gross receipts based tax in place of its corporate income tax as well as the recording of a benefit related to refunds claimed for certain state tax credits arising from prior open years both of which occurred in the first quarter of
fiscal 2006. The effective rates differed from the combined federal and state statutory rates due primarily to valuation allowances and expenses that are non-deductible for tax purposes.



8.    CONTINGENCIES:



The Art Institute of Dallas has been placed on probation by the Commission on Colleges of the Southern Association of Colleges and Schools (the
Commission) due to the schools failure to satisfactorily document clearly identified expected outcomes and assessments for its programs and services as required by the Commissions institutional effectiveness comprehensive
standard. The Commission, in connection with reaffirming the accreditation of The Art Institute of Dallas for a ten year period in December 2003, required the school to provide evidence of compliance with this standard by December 2005. The
probationary period is through at least December 2006 and may be extended for an additional year for good cause. The Commission may remove its grant of accreditation to The Art Institute of Dallas if the school does not satisfactorily address the
issues raised by the Commission. As of October 2005, approximately 1,300 students attended The Art Institute of Dallas, which is one of 32 Art Institute schools.



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|ITEM 2  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- | -------------------------------------------------------------------------------------



This Quarterly Report on Form 10-Q contains statements that may be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Those statements can be identified by the use of forward-looking terminology such as believes, estimates, anticipates, continues,
contemplates, expects, may, will, could, should or would or the negatives thereof. Those statements are based on the intent, belief or expectation of the Company as
of the date of this Quarterly Report. The following discussion should also be read in conjunction with the Management Discussion and Analysis of Financial Condition and Results of Operations  Risks Related to Our Business included
in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2005, which identifies certain risk factors related to the Company. Any such forward-looking statements are not guarantees of future performance and may involve
risks and uncertainties that are outside the control of the Company. Actual results may vary materially from the forward-looking statements contained herein as a result of changes in United States and Canada or international economic conditions,
governmental regulations and other factors. The Company expressly disclaims any obligation or understanding to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Companys
expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The following discussion of the Companys financial condition and results of operations should be read in conjunction
with the interim unaudited condensed consolidated financial statements of the Company and the notes thereto, included herein.



Revenue



Our net revenues consist of tuition and fees, student housing fees, bookstore sales, restaurant sales in connection with culinary programs, workshop fees and sales of related study materials. Tuition revenue generally
varies based on the average tuition charge per credit hour, type of program, specific curriculum and the average student population. Bookstore and housing revenue is largely a function of the average student population. Advance payments represent
that portion of payments received but not earned, while unearned tuition represents amounts billed but not earned, both are reflected as current liabilities in the accompanying consolidated balance sheets. The advanced payments are typically related
to future academic periods and are for the most part, refundable.



Operating
Expenses



Educational services expense consists primarily
of costs related to the development, delivery and administration of our education programs. Major cost components are faculty compensation, administrative salaries, costs of educational materials, facility occupancy costs, information systems costs,
bad debt expense and depreciation and amortization of property and equipment.



General and administrative expense consists of marketing and student admissions expenses and certain central staff departmental costs such as executive management, finance and accounting, legal, corporate development
and other departments that do not provide direct services to our students. We have centralized many of these services to gain consistency in management reporting, efficiency in administrative effort and cost control.



Depreciation is recognized using the straight-line method over the shorter of
the useful lives or lease terms of the related assets, under the half-year convention, for financial reporting purposes and accelerated methods for income tax reporting purposes. The use of the half-year convention for purposes of determining
depreciation expense is not materially different than using the date that the property and equipment were placed in service. Amortization of intangibles relates to the values assigned to identifiable intangible assets. These intangible assets arose
principally from the acquisition of schools and development of curriculum for various online programs.



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Critical Accounting Policies



In preparing our financial statements in conformity with accounting principles generally accepted in the United States,
judgments and estimates are made about the amounts reflected in the consolidated financial statements that affect the reported amounts of assets and liabilities, and the reported amounts of revenue and expenses, during the reporting period. As part
of the financial reporting process, our management collaborates to determine the necessary information on which to base judgments and develop estimates used to prepare the consolidated financial statements. Historical experience and available
information are used to make these judgments and estimates. However, different amounts could be reported using different assumptions and in light of changes in facts and circumstances. Therefore, actual amounts could differ from the estimates
reflected in the accompanying condensed consolidated financial statements.



Revenue Recognition and Receivables



We bill tuition and housing revenues at the beginning of an academic term and recognize the revenue on a pro rata basis over the term of instruction or occupancy. For most of our programs, the academic and fiscal
quarters are the same; therefore, unearned revenue is not significant at the end of a fiscal quarter. However, Argosy University and Brown Mackie College and to a lesser degree South University and certain Art Institutes have educational programs
with starting and ending dates that differ from our fiscal quarters. Therefore, at the end of the fiscal quarter, we have revenue from these programs that has not yet been earned in accordance with the Securities and Exchange Commissions Staff
Accounting Bulletin No. 104, Revenue Recognition in Financial Statements.



Refunds are calculated and paid in accordance with federal, state and accrediting agency standards.



The trade receivable balances are comprised of individually insignificant amounts due primarily from students throughout the United States and Canada. Our
accounts receivable balances at each balance sheet date consist of amounts related to revenue from current or former students for classes which have occurred or prior periods of occupancy in our housing facilities for which payment has not been
received; or obligations of current students for tuition, housing and other items related to academic terms in progress for which payment has not been received.



We determine our allowance for doubtful accounts for most locations primarily by categorizing gross receivables based upon the enrollment status
(in-school student vs. out-of-school student) of the student and establishing a reserve based on the likelihood of collection, considering our historical experience. Student accounts are monitored through an aging process whereby past due accounts
are pursued. When certain criteria are met (primarily aging past the due date by more than four months) and internal collection measures have been taken without success, the accounts of former students are placed with an outside collection agency.
Student accounts in collection are fully reserved and evaluated on a case-by-case basis before being written off. If current collection trends differ significantly from historical collections, an adjustment would be required to our allowance.
Historically, however, the allowance has been within our estimate of uncollectible accounts.



Share-Based Payment



Beginning on July 1, 2005, we began accounting for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment (SFAS 123R) using the modified prospective method.



We are now required to record the fair value of stock-based compensation
awards as expenses in the consolidated statement of operations. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense
over the vesting period. For current and past grants of stock options, we utilized the Black-Scholes valuation model in determining the fair value of share-based awards at the grant date. This valuation requires judgment,



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##### Table of Contents

including estimating the risk free interest rate, expected life of the option and expected volatility rate. In addition, judgment is also required in
estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.



During the current fiscal year, we have granted employees restricted shares
instead of issuing stock options. Restricted shares result in compensation expense under SFAS 123R. These restricted shares will vest depending upon the achievement of certain performance objectives. In accordance with SFAS 123R, we estimate a rate
at which we believe that employees will achieve performance objectives. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.



Leases



We lease most of our administrative and educational facilities under
operating lease agreements. Before entering into a lease, an analysis is performed to determine whether a lease should be classified as a capital or an operating lease according to SFAS No. 13, Accounting for Leases, as amended
(SFAS 13). These lease agreements typically contain tenant improvement allowances and rent holidays. Tenant improvement allowances are recorded as a leasehold improvement asset (which is included in Property and Equipment, net) when the
leasehold asset is placed in service and both the tenant improvement asset and related deferred rent liability are amortized on a straight-line basis over the shorter of the term of the lease or useful life of the asset as additional depreciation
expense and a credit to rent expense, respectively. For leases that contain a rent holiday, total rent payments are recognized straight-line over the entire lease term. Lease agreements sometimes contain quantifiable rent escalation clauses, which
are accounted for on a straight-line basis over the life of the lease. Our lease terms generally range from one to twenty years with one or more renewal options. For leases with renewal options, we record rent expense on a straight-line basis over
the original lease term, exclusive of the renewal period. When a renewal occurs, we record rent expense over the new term. Consistent with prior practice, we utilize the capitalization method to account for rent costs recognized during
the period of time we perform build-out or construction activities. This time period is typically 120 days, but can extend longer for larger construction projects. Rent capitalization ceases when the leased premises are substantially ready for use
and the capitalized cost is included with the cost of the leasehold improvements amortized over the life of the lease as an addition to rent expense. However, as discussed below under New Accounting Standards, rent capitalization ceased
on January 1, 2006. We also lease space from time to time on a short-term basis in order to provide specific courses or programs.



Long-Lived Assets



We evaluate the recoverability of property and equipment and intangible assets other than goodwill whenever events or changes in circumstances indicate
the carrying amount of any such assets may not be fully recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Changes in circumstances include economic conditions or operating
performance. If such a circumstance existed, we would perform additional analysis based upon assumptions about the estimated future undiscounted cash flows associated with the asset. If the projected undiscounted future cash flows are less than the
carrying value, we would determine the fair value of the asset based upon a discounted cash flow model. If the discounted cash flows are less than the carrying value of the asset, an impairment loss is recognized. We continually apply our judgment
when performing these evaluations to determine the timing of the testing, the undiscounted cash flows used to assess recoverability and the fair value of the asset. Key to this process is the identification of indicators of impairment and accurately
estimating cash flows. The failure to identify an indicator or inaccurate cash flow estimates could result in unrecognized impairments. To date, we believe our processes of identifying and estimating have produced timely and accurate recognition of
impairments.



We evaluate the recoverability of the goodwill
attributable to each reporting unit as required under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), by comparing the fair value of each reporting unit with its carrying value. The evaluation is
performed at least annually and when potential



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impairment indicators exist as required by SFAS No. 142. Individual campus components have been aggregated to form distinct operating divisions by
geographic location within North America. Effective July 1, 2005, these operating divisions were reorganized to form six (from the previously reported seven) operating divisions by geographic locations within North America. We completed our
annual impairment test during the 2006 fiscal first quarter and determined that goodwill was not impaired. We continually apply our judgment when performing these evaluations to determine the financial projections used to assess the fair value of
each reporting unit. The fair market value of the reporting units is estimated by applying multiples to earnings before interest, tax and depreciation. To validate the multiples used, management compares the multiples to recent identified
transactions where businesses similar to ours were sold.



Income Taxes



We account for income
taxes in accordance with SFAS 109, Accounting for Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities result from (i) temporary differences in the
recognition of income and expense for financial and federal income tax reporting requirements, and (ii) differences between the recorded value of assets acquired in business combinations accounted for as purchases for financial reporting
purposes and their corresponding tax bases.



At
December 31, 2005, we had net state operating loss carryforwards of approximately $42.4 million and a related deferred tax asset of $2.9 million. The carryforwards expire at varying dates beginning in fiscal 2007 through fiscal 2026. We have
determined that it is currently more likely than not that the deferred tax asset associated with certain state net operating losses will not be realized and have established a valuation allowance of $0.8 million against the deferred tax
asset related to those losses.



At December 31, 2005, we
had Canadian net operating loss carryforwards of approximately $18.9 million and a related deferred tax asset of $6.7 million. The carryforwards expire at varying dates beginning in fiscal 2007 through fiscal 2016. At December 31, 2005, we had
additional Canadian deferred tax assets of $1.7 million related to temporary items. We have determined that it is currently more likely than not that all of our Canadian deferred tax assets will not be realized and have established a
valuation allowance equal to the gross deferred tax asset balance of $8.4 million. We evaluate on a quarterly basis whether, based on all available evidence, our deferred income tax assets are realizable.



Internal Controls Over Financial Reporting



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.



New
Accounting Standards



In October 2005, the Financial
Accounting Standards Board (FASB) issued FASB Staff Position FAS 13-1 (FSP FAS 13-1), which requires companies to expense rental costs associated with ground or building operating leases that are incurred during a
construction period. As a result, companies that are currently capitalizing rental costs during the construction phase of a lease are required to expense rental costs beginning in the first reporting period beginning after December 15, 2005.
FSP FAS 13-1 is effective for the Company as of the third quarter of fiscal 2006. We evaluated the provisions of FSP FAS 13-1 and do not believe that its adoption will have a material impact on the Companys financial condition or results of
operations.



In May 2005, the Financial Accounting
Standards Board issued SFAS No. 154, Accounting Changes and Error Corrections, which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes
in accounting principle as well as to changes required



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by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 eliminates the requirement to include the cumulative
effect of changes in accounting principle in the income statement and instead requires that changes in accounting principle be retroactively applied. A change in accounting estimate continues to be accounted for in the period of change and future
periods if necessary. A correction of an error continues to be reported by restating prior period financial statements. SFAS No. 154 is effective for EDMC for accounting changes and correction of errors made on or after July 1, 2006.



In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional Asset Retirement Obligations. FIN No. 47 clarifies the timing of liability recognition for retirement obligations associated with tangible long-lived assets that are
conditional on a future event. FIN No. 47 is effective as of the end of the fiscal year ending after December 31, 2005, with early adoption permitted. We are in the process of evaluating the potential impact of FIN No. 47, if any.



Results of Operations



Three months ended December 31, 2005 compared to the three months ended
December 31, 2004



Revenues for the three months
ended December 31, 2005 increased 13.3% to $312.6 million, compared to $275.8 million for the same period a year ago, primarily resulting from a 9.5% increase in total student enrollment and an approximate 5% increase in tuition rates. Tuition
revenue generally varies based on the average tuition charge per credit hour, type of program, specific curriculum and the average student population. Total enrollment at the start of the second quarter of fiscal 2006 was 72,471 students compared to
66,179, students for the same period last year.



We adopted
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R) on July 1, 2005, using the modified prospective method. Under the modified prospective method, the effect of the standard is
recognized in the period of adoption and in future periods. Prior periods, which were accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), are not restated to
reflect the impact of adopting the new standard. SFAS 123R requires share-based payments to be accounted for at fair value, measured at the grant date for equity awards, and recognized as expense over the requisite service period. For the second
fiscal quarter of 2006, compensation expense related to share-based plans was $7.0 million compared to $0.3 million in the second quarter of fiscal 2005. Had we accounted for share-based compensation under the SFAS 123R fair value expense
method in the comparable fiscal 2005 period, we would have recorded $7.4 million of compensation expense and $14.6 million, respectively, for the three month and six month periods ended December 31, 2004.



Our educational services expense increased by $13.7 million, or 8.7%, to
$171.1 million in the second quarter of 2006 from $157.4 million in fiscal 2005, due primarily to the incremental costs incurred to support higher student enrollment. Educational services expense includes faculty and certain administrative
compensation, rent and other facility operating costs, cost of sales, bad debt, and depreciation and amortization. Overall, educational services expense as a percentage of revenue decreased approximately 240 basis points to 54.7% in the second
quarter of fiscal 2006 from 57.1% in the second quarter of fiscal 2005. This decrease is attributable primarily to leverage on our personnel, facilities, and bad debt expenses, which decreased as a percentage of revenue. Share based compensation
expense, which is a component of personnel expense, was $2.2 million in the second quarter of fiscal 2006. Bad debt expense was 120 basis points lower as a percentage of revenue compared to the prior year due to a continued evaluation of bad debt
reserves, the effect of the reversal of approximately $0.8 million in one-time items, and a strong focus on collection efforts. Other components of educational services decreased as a percentage of revenue, including travel, insurance,
telecommunications, supplies, consulting and other operating expenses as a result of cost control efforts.



General and administrative expense was $62.5 million for the three months ended December 31, 2005, an increase of 21.1% from $51.6 million in the
prior year period. The increase was primarily due to higher advertising and salaries expenses offset by lower travel, consulting and audit expenses. As a percentage of net



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revenue, general and administrative expense increased 130 basis points over the prior period. This was primarily due to increases in share-based compensation
expense and advertising expense, which increased 150 basis points and 100 basis points, respectively over the prior year period. Share-based compensation expense, which impacted personnel expense, was $4.7 million in the second quarter of fiscal
2006 compared to $0.3 million in fiscal 2005.



Amortization of
intangibles decreased to $1.1 million in the second quarter of fiscal 2006, as compared to $1.7 million in the second quarter of fiscal 2005. The decrease was due to certain intangible assets becoming fully amortized, partially offset by higher
amortization expense for capitalized software costs related to online curriculum development.



Income before interest and taxes, or operating income, increased by $12.7 million to $77.9 million in the fiscal 2006 second quarter from $65.1 million in the fiscal 2005 second quarter. The corresponding margin
increased approximately 130 basis points to 24.9% for the quarter as compared to 23.6% for the prior year quarter due to the factors described above.



Net interest income was $1.4 million in the second quarter of fiscal 2006 as compared to expense of $0.3 million in comparable year ago period. The
increase in net interest income was due to higher investment balances and more favorable rates on short-term investments in the second quarter of fiscal 2006, offset by amortization of $0.1 million in fees paid in connection with securing the
revolving credit agreement and interest expense on mortgage indebtedness at two of our schools. The prior period expense was a result of higher borrowing levels during the period and lower overall cash balances.



Our effective tax rate was 39.9% for the second quarter of fiscal 2006, as
compared to 39.0% recorded in the comparable quarter of the prior fiscal year. The effective tax rate for fiscal 2005 was 39.8%. The increase in the quarterly rate as compared to the prior year was primarily due to a $1.3 million reduction in tax
reserves recorded during the second quarter of fiscal 2005 related to the favorable resolution of a tax audit. The effective rates differed from the combined federal and state statutory rates due primarily to valuation allowances and expenses that
are non-deductible for tax purposes.



Net income increased by
$8.1 million to $47.6 million in the fiscal 2006 second quarter from $39.6 million the year ago period. The increase is attributable to improved results from operations and interest income offset by $7.0 million pretax in share-based compensation
expense recognized in the second quarter of 2006. This compares to $0.3 million pretax in share-based compensation expense recorded in the comparable year ago period due to a restricted stock award.



Six months ended December 31, 2005 compared to the three months ended
December 31, 2004



Revenues for the six months ended
December 31, 2005 increased 15.6% to $565.6 million, compared to $489.4 million for the same period a year ago, primarily resulting from a 10.9% increase in average total student enrollment and an approximate 5% increase in tuition rates.
Tuition revenue generally varies based on the average tuition charge per credit hour, type of program, specific curriculum and the average student population. Average student enrollment for the first half of fiscal 2006 increased to 66,105 students
compared to 59,626 students for the same period last year.



For
the first half of 2006, compensation expense related to share-based plans was $13.3 million compared to $0.5 million in the first half of fiscal 2005. Had we accounted for share-based compensation under the SFAS 123R fair value expense
method in the comparable fiscal 2005 period, we would have recorded an additional $13.8 million in compensation expense.



Our educational services expense increased by $34.3 million, or 11.1%, to $342.5 million in the first half of 2006 from $308.2 million in fiscal 2005, due
primarily to the incremental costs incurred to support higher student enrollment. Educational services expense includes faculty and certain administrative compensation, rent and



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other facility operating costs, cost of sales, bad debt, and depreciation and amortization. Overall, educational services expense as a percentage of revenue
decreased approximately 240 basis points to 60.6% in the first half of fiscal 2006 from 63.0% in the first half of fiscal 2005. This decrease is attributable primarily to leverage on our personnel and facilities expenses, which decreased as a
percentage of revenue. Share-based compensation expense, which is a component of personnel expense was $5.0 million in the first half of fiscal 2006. Bad debt expense was 60 basis points lower as a percentage of revenue compared to the prior year
due to a continued evaluation of bad debt reserves and a strong focus on collection efforts. Other components of educational services decreased as a percentage of revenue, including travel, telecommunications, consulting and other operating expenses
as a result of cost control efforts.



General and
administrative expense was $122.0 million for the first half of fiscal 2006, an increase of 24.3% from $98.2 million in the prior year period. The increase was primarily due to higher advertising, salaries (including SFAS 123R expense) and
telecommunications expenses. As a percentage of net revenue, general and administrative expense increased approximately 150 basis points over the prior period. This was primarily due to share-based compensation expense, which was $8.3 million in the
first half of fiscal 2006 compared to $0.5 million in fiscal 2005. Also contributing to the increase was advertising expense, which increased approximately 80 basis points. These increases were offset by decreases in telecommunications, audit,
travel and other operating expenses.



Amortization of
intangibles decreased to $2.6 million in the first half of fiscal 2006, as compared to $3.4 million in the first half of fiscal 2005. The decrease was due to certain intangible assets becoming fully amortized, partially offset by higher amortization
expense for deferred software costs related to online curriculum.



Income before interest and taxes, or operating income, increased by $18.9 million to $98.5 million in the first half of fiscal 2006 from $79.6 million in the prior year period. The corresponding margin increased approximately 120 basis
points to 17.4% for the first half of the fiscal year as compared to 16.3% for the prior year due to the factors described above.



Net interest income was $2.1 million in the first half of fiscal 2006 as compared to expense of $1.0 million in the comparable year ago period. The
increase in net interest income was due to higher investment balances and more favorable rates on short-term investments in the first half of fiscal 2006, partially offset by amortization of $0.2 million in fees paid in connection with securing the
revolving credit agreement and interest expense on mortgage indebtedness at two of our schools. The prior period expense was a result of higher borrowing levels during the period and lower overall cash balances.



Our effective tax rate for the first half of fiscal 2006 was 38.8%, as
compared to 39.3% in the comparable period in the prior fiscal year. The effective tax rate for fiscal 2005 was 39.8%. The decrease in the year-to-date rate as compared to the prior year was primarily due to the reversal of deferred state tax
liabilities that resulted from Ohios adoption of a gross receipts based tax in place of its corporate income tax as well as the recording of a benefit related to refunds claimed for certain state tax credits arising from prior open years both
of which occurred in the first quarter of fiscal 2006. The effective rates differed from the combined federal and state statutory rates due primarily to valuation allowances and expenses that are non-deductible for tax purposes.



Net income increased by $13.8 million to $61.6 million in the first half of
fiscal 2006 from $47.7 million the year ago period. The increase is attributable to improved results from operations, interest income and a lower effective tax rate, offset by $13.3 million in share based payment expense recognized in the first half
of 2006. This compares to $0.5 million in share based payment expense recorded in the comparable year ago period due to a restricted stock award.



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Liquidity and Funds of Capital Resources



Our primary source of cash is tuition collected from our students. We finance our operating activities primarily from cash
generated from operations. Acquisitions are primarily financed through cash generated from operations as well as borrowing on our revolving credit facility. We believe that cash flow from operations, supplemented from time to time with borrowings
under the revolving credit agreement, will provide adequate funds for ongoing operations, planned expansion to new locations, planned capital expenditures and debt service during the next twelve months.



At December 31, 2005, our working capital was approximately $133.3
million. This is compared to working capital of $47.0 million at June 30, 2005 and a working capital deficit of $30.7 million at December 31, 2004. The significant increase in working capital as compared to June 30, 2005 was due
primarily to the repayment of our borrowings on our revolving credit facility during the first half of fiscal 2006 and reduced levels of receivables, partially offset by higher levels of advanced payments and lower accrued liabilities and accounts
payable.



Cash generated from operations for the first six
months of fiscal 2006 was $132.7 million, an increase of $52.2 million over the same period in fiscal 2005. Higher cash flow compared to the prior year was due to growth in net income, non-cash expenses and positive working capital changes. Changes
in working capital contributed $23.2 million to cash flow from operating activities compared to the year ago period. Better collections on receivables resulted in $10.0 million in the growth of cash flow compared to the prior period. Non-cash
expenses were higher compared to the prior year period due to the expensing of share-based compensation beginning in July 1, 2005, and higher depreciation and amortization expense.



Days sales outstanding (DSO) in receivables decreased to 12.8 days at December 31, 2005 from 16.0 days at
December 31, 2004. We calculate DSO by dividing net accounts receivable by average daily revenue for the preceding quarter. Quarterly average daily revenue is determined by taking the total revenue for a quarter and dividing by the number of
days in a quarter. The decrease in DSO was primarily due to better collections along with greater use of third party loans by our students. As a means of controlling our credit risk, we have established alternative loan programs with student loan
lenders. These programs, which are non-recourse to us, help bridge the funding gap created by tuition rates that rise faster than financial aid sources. We believe that these loans are attractive to our students because they provide for repayment
post graduation and are available to borrowers with lower than average credit ratings.



Capital expenditures were $34.6 million or 6.1% of revenue for the first half fiscal 2006, compared to $40.6 million, or 8.3% of revenue in the year ago period. The reduction of capital expenditures as a
percentage of revenue was due to our continued focus on capital efficiency as well as decreased spending resulting from delays in the commencement of capital projects. The fiscal 2006 capital expenditures include investments in schools acquired or
started during the previous several years and schools added in fiscal 2006, continued expansion and improvements to current facilities, additional or replacement school and housing facilities, and classroom and administrative technology.



Our amended and restated revolving credit facility allows for borrowings
up to $250 million and expires August 18, 2008. The agreement contains customary covenants that, among other matters, require us to meet specified financial ratios, restrict the repurchase of Common Stock and limit the incurrence of additional
indebtedness. Outstanding letters of credit reduce the availability of borrowings under the revolving credit facility. At December 31, 2005, we had no borrowings outstanding under this facility and were in compliance with all covenants under
the agreement. Our availability of borrowings under the revolving credit agreement was approximately $247 million at December 31, 2005. The revolving credit agreement allows us to guarantee up to $5 million of student debt per fiscal year.



Borrowings under the revolving credit agreement are available
to us to finance acquisitions and fund occasional working capital needs resulting from the seasonal pattern of cash receipts throughout the year. The



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level of accounts receivable reaches a peak immediately after the billing of tuition and fees at the beginning of each academic period. Collection of these
receivables is heaviest at the start of each academic period. Additionally, federal financial aid proceeds for continuing students can be received up to ten days prior to the start of an academic quarter. We typically conduct a significant
portion of our capital purchases in the months leading up to the start of an academic quarter.



We lease most of our facilities. We anticipate that future commitments on existing leases will be paid from cash provided from operating activities. We also expect to extend the terms of leases that will expire or
enter into similar long term commitments for comparable space.



We guarantee a significant portion of real estate lease obligations for our subsidiaries, including a mortgage on the building occupied by Western State University College of Law. This mortgage loan had an outstanding balance of $3.3
million at December 31, 2005 and is due in March 2006.



The following table describes our commitments at December 31, 2005 under various contracts and agreements (in thousands):



|                                       |  |                       |         |                        |   |           |  |                 |         |  |   |         |  |   |        
|-------------------------------------- |  | --------------------- | ------- | ---------------------- | - | --------- |  | --------------- | ------- |  | - | ------- |  | - | -------
|                                       |  | Totalamountscommitted |         | Payments due by period
|                                       |  | 2006                  |         | 2007-2008              |   | 2009-2010 |  | 2011-Thereafter
|Line of credit borrowings              |  | $                     |        |                        | $ |          |  | $               |        |  | $ |        |  | $ |       
|Standby letters of credit (1)          |  |                       | 2,711   |                        |   |          |  |                 |        |  |   |        |  |   |       
|Mortgage obligation                    |  |                       | 3,281   |                        |   | 3,281     |  |                 |        |  |   |        |  |   |       
|Operating leases                       |  |                       | 478,448 |                        |   | 37,236    |  |                 | 127,938 |  |   | 104,384 |  |   | 208,890
|Capital leases                         |  |                       | 3,058   |                        |   | 1,225     |  |                 | 1,222   |  |   | 611     |  |   |       
|Unconditional purchase obligations     |  |                       | 18,951  |                        |   | 8,236     |  |                 | 9,284   |  |   | 984     |  |   | 447    
|Mortgage debt of consolidated entities |  |                       | 2,025   |                        |   | 167       |  |                 | 373     |  |   | 436     |  |   | 1,049  
|                                       |  |                       |         |                        |   |           |  |                 |         |  |   |         |  |   |        
|Total commitments                      |  | $                     | 508,474 |                        | $ | 50,145    |  | $               | 138,817 |  | $ | 106,415 |  | $ | 210,386
|                                       |  |                       |         |                        |   |           |  |                 |         |  |   |         |  |   |        



|(1) | We do not anticipate these letters of credit will be drawn on.
|--- | --------------------------------------------------------------



|(2) | We have various contractual obligations that extend through 2010 for services.
|--- | ------------------------------------------------------------------------------



Contingencies



In July 2005, the staff of the SECs Enforcement Division advised us that it was conducting an informal inquiry into trading in our common stock. The
informal inquiry relates to trading prior to our third quarter earnings announcement in May 2005. We believe the inquiry was initiated following trades by one of our former directors during the time frame that appeared to violate the short swing
profit recovery provisions of Section 16(b) of the Securities Exchange Act of 1934. Under that provision, profits made by officers, directors and certain shareholders on transactions within a six month period of a matching transaction inure to
the benefit of and may be recovered by the corporation. As a result, the former director paid and we accepted approximately $530,000 as disgorgement of profits on the transactions. The profit disgorgement was recorded as an increase to shareholders
equity in the first quarter of fiscal 2006. We advised the SEC staff of the Section 16(b) recovery and are cooperating fully with the SECs informal inquiry.



In addition to the matter described above, we are a defendant in certain legal proceedings arising out of the conduct of our
business. In the opinion of management, based upon an investigation of these claims and discussion with legal counsel, the ultimate outcome of such legal proceedings, individually and in the aggregate, will not have a material adverse effect on our
consolidated financial position, results of operations or liquidity.



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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are exposed to market risks in the ordinary course of business that include foreign currency exchange rates. We typically do not utilize material
interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. We are subject to fluctuations in the value of the Canadian dollar relative to the U.S. dollar. We do not
believe the Company is subject to material risks from reasonably possible near-term change in exchange rates.



ITEM 4  CONTROLS AND PROCEDURES



Item 4. Controls and Procedures



(a)
Evaluation of Disclosure Controls and Procedures



Our Chief
Executive Officer and Chief Financial Officer have evaluated the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of December 31, 2005, and they concluded that these
controls and procedures are effective.



(b) Changes in Internal
Controls



There was no change in our internal control over
financial reporting identified in connection with the evaluation of the Companys disclosure controls and procedures as of December 31, 2005, conducted by our Chief Executive Officer and Chief Financial Officer, that occurred during the
quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II



ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



The annual meeting of the Companys shareholders was held on November 10, 2005. At the meeting, the following proposals were submitted to a vote of the Companys shareholders:



Proposal 1 - a proposal to elect three Class III directors to serve until the annual meeting
of shareholders to be held in the year 2008;



Proposal 2 - a proposal to amend
and restate the Companys 2003 Incentive Plan; and



Proposal 3 - a
proposal to ratify the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for fiscal year 2006.



The following table sets forth the results of the voting.



Election of directors (Class III):



Thomas J. Colligan

Votes for: 65,965,548

Authority withheld: 487,302



Robert B. Knutson

Votes for: 64,550,496

Authority withheld: 1,902,354



John R. McKernan, Jr.

Votes for: 65,966,865

Authority withheld: 485,985



Approving the amendment and restatement of the 2003 Incentive Plan



Votes for: 54,739,212

Votes against: 6,290,211

Abstentions: 60,121

Broker non-votes: 14,264,698



Ratification of the appointment of the Companys independent auditors



Votes for: 66,349,496

Votes against: 37,831

Abstentions: 65,523

Broker non-votes: 8,901,391



ITEM 6  EXHIBITS



|   |   |  |           |  |                                                                                                                                                                                         
|-- | - |  | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a | ) |  | Exhibits:
|   |   | 
|   |   |  | (10.01)   |  | The Education Management Corporation Deferred Compensation Plan, incorporated by reference to Exhibit 10.01 on Current Report on Form 8-K filed with the Commission on December 19,
2005
|   |   | 
|   |   |  | (15.1)    |  | Registered Independent Accountants Review Report                                                                                                                                       
|   |   | 
|   |   |  | (15.2)    |  | Auditors Acknowledgement                                                                                                                                                               
|   |   | 
|   |   |  | (31.1)    |  | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer                                                                                                                   
|   |   | 
|   |   |  | (31.2)    |  | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer                                                                                                                   
|   |   | 
|   |   |  | (32.1)    |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                        
|   |   | 
|   |   |  | (32.2)    |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                        



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |                                                                                      
|---------------------- |  |  |  | -------------------------------------------------------------------------------------
|                       |  |  |  | EDUCATION MANAGEMENT CORPORATION (Registrant)                                        
|                       |  | 
|Date: February 9, 2006 |  |  |  |                                                                                      
|                       |  | 
|                       |  |  |  | /s/    JOHN R. MCKERNAN,
JR.                                                         
|                       |  |  |  | John R. McKernan, Jr.                                                                
|                       |  |  |  | Vice Chairman and Chief Executive Officer                                            
|                       |  | 
|                       |  |  |  | /s/    ROBERT T.
MCDOWELL                                                            
|                       |  |  |  | Robert T. McDowell                                                                   
|                       |  |  |  | Executive Vice President and Chief Financial Officer and Principal Accounting Officer



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EXHIBIT INDEX



|        |  |                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10.01) |  | The Education Management Corporation Deferred Compensation Plan, incorporated by reference to Exhibit 10.01 on Current Report on Form 8-K filed with the Commission on December 19,
2005.
|        | 
|(15.1)  |  | Registered Independent Accountants Review Report.                                                                                                                                       
|        | 
|(15.2)  |  | Auditors Acknowledgement.                                                                                                                                                               
|        | 
|(31.1)  |  | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.                                                                                                                   
|        | 
|(31.2)  |  | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.                                                                                                                   
|        | 
|(32.1)  |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                         
|        | 
|(32.2)  |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                         



24